It doesn’t matter that the Lerners are the wealthiest owners in baseball

I have read a few passing mentions that the National’s owners are the richest owners in baseball. It is always said with a wink and a prayer that the Nationals will become a team like the Dodgers, Yankees, Phillies, or Red Sox. A team that is prepared to spend money to sign or resign free agents. This is a complete misunderstanding of the way teams operate. The truth is, currently the Nationals are a below average revenue baseball team with an above, and they will usually have an average MLB payroll. The Yankees can run huge payrolls because the Yankees have huge revenue. To put it another way you don’t need to be a billionaire to own a baseball team, you need to be a billionaire to buy a baseball team. The Nats do play in a division that has 2 of the top 5 revenue producing team, the Mets and Phillies. The Nats are actually closer to the Royals and the Pirates in local revenue then they are to those two teams.

What has having the wealthiest owners in baseball brought the Nationals fans? The answer is almost nothing. Having a billionaire owner does not only guarantee a baseball franchise one thing, less downside risk. According to Forbes, only 6 teams operated with negative operating income. The Tigers, Angels, Marlins, Blue Jays, Rangers and Mets; none of them more than 5 million in the red. The Rangers and Angels got there based on taking a loss due to future TV contract revenue. The Mets and Marlins had well documented financial troubles and the Blue Jays added 160 million in contract obligations through a mega trade. It is very rare for an owner to use his own money to fund a team’s payroll. Only the Tigers seem to fit that profile, and they are only slightly in the red.

I am not involved in sports finance, but I have looked at few team incomes statements. Running a baseball team requires massive amounts of capital to operate. Team revenue and expenses do not flow at the same rate. An example of this is players are paid at regular intervals and given signing bonuses, but teams are not allowed season ticket revenue until games are actually played even though the tickets are already paid for. A team that is well capitalized doesn’t need to forgo normal operations due to irregular cash-flow. All this is a way of saying the Nats don’t have to do things like Billy Bean in Moneyball to operate.

When the Lerner’s purchased the Nationals they, along with Jim Bowden, developed “The Plan.” It looked something like what the Houston Astros are going through right now and what the Tampa Rays went through a few years before. The part of the Plan that is less talked about, but almost as important is the high revenue this type of team can produce by avoiding costly free agents that usually are the difference between below average and above average teams. The Nationals collected TV, gate, and revenue sharing, but did not commit much to team payroll. The Lerner’s used this revenue to retire the high debt they took on when buying the team. This is what Jim Crane is doing with the Astros and what Tom Hicks of the Rangers didn’t. Hicks got excited and signed A-Rod, only to declare bankruptcy a few years later.

Baseball teams are run like businesses are run; they are not run like home finances are run. Teams operate as a separate entities. Well-run teams, like well-run businesses, are not used as a piggy bank for their owner to engage in extravagant spending, just like well-run company owners don’t buy art or throw extravagant parties for family members (Tyco). There is nothing I have seen from the Nats to make me think they are anything but a well-run business. Which, means that the high hopes of the Lerners bankrolling a spending spree is just a pipe dream.